Monday, 13 February 2017

Some thoughts on Economics for India
While thinking about what to say in my speech in the forthcoming function at NIT, Tiruchirapalli on 17th February some thoughts occurred to me, which I am noting down :
The English economist Adam Smith in his classic book ' The Wealth of Nations ' published in 1776 advocated open markets, and relatively barrier free domestic and international trade. In other words, Smith was against not only constraints on domestic industry, but also against protectionist policies against international competition.
In contrast, the German economist Friedrich List in his book 'The National System of Political Economy ' published in 1841 said that international free trade would result in subjection of the less advanced nations by the predominant manufacturing and commercial nations. He advocated protection to domestic industries by less industrialized nations ( by customs duties )..
It may be mentioned that England was the first country in the world to industrialize. German industrialization began later, and at that time German industries were small compared to British industries, so they needed state protection to face the competition of British industries, otherwise German industries could not survive. This protection, List argued, should be in the form of customs duties on British goods.
A giant can fight another giant. But a child cannot fight a giant. So a child must be protected and nurtured until it, too, becomes a giant.
List pointed out that when Britain was doing its own industrialization, it was done under heavy protection to its industries. But when it had broadly completed its industrialization, Britishers were preaching free trade to other nations.
List wrote " Had the English left everything to itself—'Laissez faire, laissez aller', as the popular economical school ( i.e. Adam Smith's schl ) recommends—the German merchants of the Steelyard would be still carrying on their trade in London, the Belgians would be still manufacturing cloth for the English, and England would have still continued to be the sheep-farm of the Hansards. Indeed, it is more than probable that without her highly protectionist commercial policy England would never have attained to such a large measure of municipal and individual freedom as she now possesses, for such freedom is the daughter of industry and wealth ".
The German authorities followed List's recommendations, with the result that Germany could rapidly industrialize. Japan, too, did the same, and so did USA
Since India is less industrialized as compared to developed countries, in my opinion India too must follow List's theory. Our industries need protection if they are to grow. For instance, Chinese goods are capturing our markets, and in my opinion heavy customs duties should be imposed on them, or their entry into India should be prohibited altogether.
This does not mean I am in favour of restoration of the licence-permit raj which had strangled our economy for decades. I am against most of internal restraints, and am only referring to free entry of foreign goods into India, to give protection to our own industries.
At the same time, special help by the state should be given to our new industries and new entrepreneurs so that they can tide over the difficulties which all new entrants face. In particular, special help and concessions should be given to small and middle level industries, as these have few reserves and financial back up. Youth starting as entrepreneurs should be given special help, e.g. in the form of loans at low interest, free technical advice, tax holidays for long periods, etc.
Most of the nations which are today industrialized did their industialization under governments which were friendly to their domestic industry and helped promote it. India too should do the same.